INFOCUS | INDIA-CHINA | TRADE
Remove NoN-TaRiff BaRRieRs
Open up Nathu La again Even though India-China trade is on the upswing, many measures need to be taken to balance both sides. M Absar Alam
T
he Shanghai Cooperation Organization (SCO) annual summit was held in the first week of June 2012 in Beijing. During this meeting, External Affairs Minister SM Krishna reasserted India’s willingness to engage closely with China. The SCO is an inter-governmental security organisation with six members – China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan set up with the objective to facilitate security and military collaboration as well as economic cooperation with member countries. The minister during the summit stated that “India attaches the utmost importance and high priority in our foreign policy formulations and our |60| India-China Chronicle July 2012
cooperative partnership with China.” New Delhi’s desire to continue economic relations with Beijing has been clearly addressed on this occasion as in the past. The statement came just after Prime Minister Manmohan Singh’s visit to Myanmar where he also mooted that Myanmar could play the role of an economic bridge between India and China. India’s economic engagement with China has recently been witnessing progress towards exploring the diversification of India’s export basket. Looking at the potential of India’s exports to China, there have been some recent changes in the bilateral engagement which indicate the foundation of future progress. China accepting the import of Basmati rice from India is notable along with the inclusion of Indian carpets as one of the identified sectors
among the small and medium scale products in the Chinese market. Both countries are striving hard to enhance their international trading position and the current bilateral trade stands at US$ 74 billion, of which China has a trade surplus of US$ 24 billion. With this concern, steps were taken to explore various opportunities in the Chinese market which would offset the trade deficit which is unfavourable to India. In addition to the above, India’s Foreign Minister once again stressed on the balanced trade progress between the two nations. Moreover, India has also spoken about its desire to join the SCO owing to its geo-economic importance in the Central Asian region. A meeting between India and China was also held in Tawang to maintain peace along the bordering areas. The question is how the normalisation of Indo-China relations could benefit India’s export basket. The answer can be seen through the recent
export composition of India to China. China during the modern era has become a manufacturing hub and therefore it sources raw materials from India for its manufacturing industries. The composition of India’s export to China has been predominantly iron ore. India’s top four export commodities to China include ore, slag and ash; copper and its products; cotton; and iron and steel accounting for 69 per cent of India’s bilateral export basket during 2010-11. India’s share of ores export to China was around 67 per cent in the financial year 2006 which came down to 27 per cent in the financial year 2011. Similarly, India’s share of iron and steel export to China was almost 11 per cent in 2004-05 which reduced to around 5.6 per cent in 2010-11. In addition, cotton, copper and its products, precious stones and metals, electrical and electronic equipments, vegetables, chemicals and products from other small and medium scale industries like the carpet industry has the potential to reach the Chinese market. Pharmaceutical is another important commodity in which India has a comparative advantage. India’s global pharmaceutical exports accounted for approximately US$ 6.5 billion in 201011. More trade in such commodities could reduce the bilateral trade imbalance and make the business environment more conducive. The potential of high value products from India to China is not able to reach its mark due to the presence of Non-Tariff Barriers (NTBs). The focus should be to increase the export of high value products through which the increasing trade imbalance could be managed. These products include machinery parts, auto parts, consumer durables, food items and textile products, among others. NTBs are one of the greater concerns of trade with China and it also impedes exports from India to China. These barriers are mainly in terms of a lack of transparency in customs and quality control mechanisms. It is therefore, essential to simplify the procedural aspect of imports from India which has elements of NTBs. Similarly, the issue of anti-dumping measures are also a matter of apprehension from the Indian point of view in
For India-China trade, many measures need to be taken to balance both sides
the context of the rising trade imbalance. In fact, India has filed 149 complaints against the Chinese anti-dumping policy. This is almost 50 per cent of the total anti-dumping complaints made by India against foreign countries. Thus, to create avenues for Indian exporters in China as well as to attain India’s export, the issue of NTBs needs to be revisited and resolved. In future, India’s economic relations with China are expected to improve. But this has to be based on an improved business climate not only conducive to exports of Indian products to China but also favourable to investment opportunities in both the countries. Such measures from the Chinese side would also increase avenues for investment opportunities in India as India expects Chinese investment in various sectors like steel equipment, infrastructure, telecommunications and roads, among others. Despite the gloomy market in Europe, Chinese investment in India
has increased by more than US$ 100 million last year. On the other hand Indian entrepreneurs are keen to make investments in the Chinese service sector particularly in information technology (IT), bio-technology, solar power and food processing sectors. As per the Columbia University report 2010, India has become the 21st largest country in the world for outward investment. In addition, both countries need to focus on institutionalizing business-tobusiness (B2B) interactions under their respective chambers of commerce. It is essential for the two neighbours to explore land routes such as the Nathu La Pass as a customs station for trade between the two countries and increasing the list of commodities for cross border trade through land routes. This border point was a significant trading post before 1962 when it was closed. The point had a share of around 80 per cent of Indo-China trade which is negligible now. The possibilities of use of land transport too can emerge between the two countries through both bilateral and multilateral engagements. The Bangladesh, China, India and Myanmar (BCIM) congregation may be another platform through which connectivity between the two countries could be made possible.
Absar Alam is Research Fellow with Asian Institute of Transport Development, New Delhi
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